Adam Smith on how governments learn from each other the best way of draining money from the pockets of the people (1776)

Adam Smith (1723-1790) studied in great detail how taxes were used to fund the activities of the monarchies of his day. He was especially interested in how new taxes in one state would be copied by other states:

In France there are both stamp–duties and duties upon registration. The former are considered as a branch of the aides or excise, and in the provinces where those duties take place, are levied by the excise officers. The latter are considered as a branch of the domain of the crown, and are levied by a different set of officers. Those modes of taxation, by stamp–duties and by duties upon registration, are of very modern invention. In the course of little more than a century, however, stamp–duties have, in Europe, become almost universal, and duties upon registration extremely common. There is no art which one government sooner learns of another than that of draining money from the pockets of the people.

In Holland there are both stamp–duties and duties upon registration; which in some cases are, and in some are not proportioned to the value of the property transferred. All testaments must be written upon stampt paper, of which the price is proportioned to the property disposed of, so that there are stamps which cost from three pence, or three stivers a sheet, to three hundred florins, equal to about twenty–seven pounds ten shillings of our money. If the stamp is of an inferior price to what the testator ought to have made use of, his succession is confiscated. This is over and above all their other taxes on succession. Except bills of exchange, and some other mercantile bills, all other deeds, bonds, and contracts, are subject to a stamp–duty. This duty, however, does not rise in proportion to the value of the subject. All sales of land and of houses, and all mortgages upon either, must be registered, and, upon registration, pay a duty to the state of two and a half per cent. upon the amount of the price or gofg the mortgage. This duty is extended to the sale of all ships and vessels of more than two tons burthen, whether decked or undecked. These, it seems, are considered as a sort of houses upon the water. The sale of moveables, when it is ordered by a court of justice, is subject to the like duty of two and a half per cent.

In France there are both stamp–duties and duties upon registration. The former are considered as a branch of the aides or excise, and in the provinces where those duties take place, are levied by the excise officers. The latter are considered as a branch of the domain of the crown, and are levied by a different set of officers. Those modes of taxation, by stamp–duties and by duties upon registration, are of very modern invention. In the course of little more than a century, however, stamp–duties have, in Europe, become almost universal, and duties upon registration extremely common. There is no art which one government sooner learns of another than that of draining money from the pockets of the people.

Taxes upon the transference of property from the dead to the living, fall finally as well as immediately upon the person to whom the property is transferred. Taxes upon the sale of land fall altogether upon the seller. The seller is almost always under the necessity of selling, and must, therefore, take such a price as he can get. The buyer is scarce ever under the necessity of buying, and will, therefore, honly giveh such a price as he likes. He considers what the land will cost him in tax and price together. The more he is obliged to pay in the way of tax, the less he will be disposed to give in the way of price. Such taxes, therefore, fall almost always upon a necessitous person, and must, therefore, be frequently very cruel and oppressive…

About this Quotation:

Here we have an example of “the spread of worst practice” to counter E.L. Jones' notion of “the spread of best practice” which he developed in order to show how free institutions gradually emerged in Europe. The latter expressed the idea that people and industries would relocate to areas in Europe which had lower taxes and less regulations, thus spurring other states to lower their taxes and regulations in order to compete. Smith takes the opposite view in this passage from Wealth of Nations where he shows how innovations in tax collection in one state (here France and stamp duties) where quickly copied by other states. he sadly concludes that “There is no art which one government sooner learns of another than that of draining money from the pockets of the people”.